Internal Loans
Frequently Asked Questions
What is an internal loan?
Internal loans are allocations of investable working capital to operations in exchange for commitments to repay/replenish it with future operational revenues. All internal loans have been funded from working capital designated as a Capital Reserve. All principal and interest payments on internal loans are credited to this Capital Reserve. There are three types of internal loans: auxiliary, campus, and central.
Auxiliary Loans: Auxiliary loans are internal loans that make working capital available to auxiliary units to finance university approved projects.
Campus Loans: Campus loans are internal loans that make working capital available to operating units to finance university approved projects.
Central Loans: Central loans are internal loans that make working capital funds available to finance projects of strategic importance to the university and to provide interim ‘bridge’ financing for projects whose ultimate funding will be received in the future from another source.
Auxiliary Loans: Auxiliary loans are internal loans that make working capital available to auxiliary units to finance university approved projects.
Campus Loans: Campus loans are internal loans that make working capital available to operating units to finance university approved projects.
Central Loans: Central loans are internal loans that make working capital funds available to finance projects of strategic importance to the university and to provide interim ‘bridge’ financing for projects whose ultimate funding will be received in the future from another source.
Why is repayment important?
As of June 30, 2008, the university had approximately $449 million dollars of external debt. The terms of these obligations do not require a sinking fund or establishment of a reserve fund to secure debt repayment. The university must be fiscally responsible and begin planning for these bullet maturities now, and has designated a portion of its working capital as a Capital Reserve to be available for this purpose. A portion of the Capital Reserve is invested together with the university’s endowment and other working capital in the long-term investment fund. The balance of the Capital Reserve is invested in high-quality short-term fixed income securities.
In addition to being designated as a source of servicing the university’s outstanding debt, the Capital Reserve is a source of funding for internal loans. The university anticipates that there is a strong probability that the proceeds from the repayment of internal loans plus earnings on the Capital Reserve will be sufficient to pay interest and principal associated with its outstanding long-term debt when due.
Defaults on internal loans have a negative impact on our ability to repay our external debt, since internal loans are a major source of income to our Capital Reserve. Doing your part to repay your department’s internal loan strengthens our ability to repay our external debt, and provides future opportunities for other departments to receive additional loans when needed.
In addition to being designated as a source of servicing the university’s outstanding debt, the Capital Reserve is a source of funding for internal loans. The university anticipates that there is a strong probability that the proceeds from the repayment of internal loans plus earnings on the Capital Reserve will be sufficient to pay interest and principal associated with its outstanding long-term debt when due.
Defaults on internal loans have a negative impact on our ability to repay our external debt, since internal loans are a major source of income to our Capital Reserve. Doing your part to repay your department’s internal loan strengthens our ability to repay our external debt, and provides future opportunities for other departments to receive additional loans when needed.